Lecture7 Pricing

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INTERNATIONAL MARKETING: Lecture 7 International pricing decisions Gregor Pfajfar March 2009

Transcript of Lecture7 Pricing

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INTERNATIONAL MARKETING:

Lecture 7

International pricing decisions

Gregor Pfajfar

March 2009

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Different prices in different distribution channels

in €

Source: Presentation Zinocker, Simon, Kucher & Partner, dec.2006.

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Big mac indexHaving trouble keeping track of currency

fluctuations?

The Economist tracks the average price of a McDonald’s Big Mac across the globe to give you a feel for whether a currency is under- or over-valued.

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The pivotal role of price in marketing exchanges

Money

Time

Cognitive activity

Behavior effort

Production

Promotion

Distribution

Marketing research

Value Profit

+ +

= =Price willing to pay Price willing to sell

Marketing exchange

CUSTOMER PRODUCER

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Case study: Harley Davidson

1. Describe the HD’s general pricing strategy. What does the company’s positioning have to do with its pricing strategy?

2. Should Harley alter its price, given the strong price pressures from rivals?

3. What should HD do to improve its market share in Europe?

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Strategic pricing decisions

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PPricingricing

Only area of global marketing mix where policy can be changed rapidly without large direct cost implications

Decisions in global markets are affected by complexity of influential factors

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International pricing framework

Firm-level factorsEnvironmental

factors

Product factors Market factors

Firm performance

Other

elementsPricing strategies

Terms

Source: Hollensen, Global marketing, 4e, 2008.

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Internal factors affecting international pricing decisions

• Firm-level factors• Corporate and

marketing objectives• Competitive strategy• Firm positioning• Product development• Production location• Market entry modes

• Product factors• Stage in PLC• Place in product line• Most important

product features• Product positioning• Product cost

structure

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External factors affecting international pricing decisions

• Environmental factors• Government

influences and constraints

• Inflation• Currency fluctuations• Business cycle stage

• Market factors• Customers’

perceptions• Customers’ ability to

pay• Nature of competition• Competitors’

objectives, strategies, strengths and weaknesses

• Grey market appeal

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International price corridor

Source: Hollensen, Global marketing, 4e, 2008.

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Special issues in international pricing

• Price escalation• Skimming• Market pricing• Penetration pricing• Experience curve

pricing• Bundle pricing• Transfer pricing

• What influences the height of international prices?• Currency• International

commercial terms• Financial terms• Terms of payment

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Delivery terms – INCOTERMS 2000

1. E group: EXW (Ex-works)

2. F group: FCA (Free carrier), FAS (Free alongside ship), FOB (Free on board)

transfer of costs and risk

seller buyer

transfer of costs and risk

seller buyer

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Delivery terms – INCOTERMS 2000

3. C group: CFR (Cost and freight), CIF (Cost, insurance, and freight), CPT (Carriage paid to), CIP (Carriage and insurance paid to)

4. D group: DAF (Delivered at frontier), DES (Delivered ex-ship), DEQ (Delivered ex-quay), DDU (Delivered duty unpaid), DDP (Delivered duty paid)

transfer of costs

transfer of risk

seller buyer

transfer of costs and risk

seller buyer

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Different terms of payment

Source: Hollensen, Global marketing, 4e, 2008.

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The process for handling letters of credit

Source: Hollensen, Global marketing, 4e, 2008.

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Export financing

• Commercial banks• Export credit

insurance• Factoring• Forfeiting• Bonding

• Leasing• Counter-trade

• Barter• Compensation

deal• Buy-back

agreement

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Strategic alternatives in international pricing

1. Standardization

2. Differentiation

1. Skimming

2. Penetration

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Structural factors of standardized versus differentiated pricing

Source: Hollensen, Global marketing, 4e, 2008.

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Case study: Gillette

1. Evaluate the price-level of Gillette’s Fusion

2. Discuss whether it is possible for Gillette to standardize pricing across borders for their new 5-blade, Fusion.

3. Which factors would favour price standardization and which factors would favour price differentiation?

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A taxonomy of international pricing practices

3 Multilocal

price setter

4 Global

price leader

1 Local

price follower

2 Global

price follower

High

Low

Pre

par

ed

nes

s f

or

inte

rna

tio

na

liza

tio

n

Multilocal markets Global markets

Industry globalism

Source: Hollensen, Global marketing, 4e, 2008.

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Initiating and responding to price changes

• Initiating price cuts implies the risk of…

• Low quality trap

• Fragile market share trap

• Shallow pocket trap

• Initiating price increases

• Cost inflation

• Anticipatory pricing

• Overdemand

• Delayed quotation pricing

• Escalator clauses

• Unbundling

• Reduction of discounts

• Reactions to competitors’ price changes

• Maintain price

• Maintain price and add value

• Reduce price

• Increase price and improve quality

• Launch a low-price fighter line

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How to fight a price war?

NONPRICE RESPONSES

Reveal your strategic capabilities and intentions

Offer to match competitors’ prices, offer everyday low pricing, or reveal your cost advantage.

Compete on quality Increase product differentiation by adding features to a product, or build awareness of existing features and their benefits. Emphasize the performance risks in low-priced options.

Co-opt contributors Form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services.

PRICE RESPONSES

Use complex price actions Offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for products.

Introduce new products Introduce flanking brands that compete in customer segments that are being challenged by competitors.

Deploy simple price actions

Adjust the product’s regular price in response to a competitor’s price change or another potential entry into the market.

Source: Rao, Bergen, Davis (2000). How to fight a price war, Harvard business review, pp. 107-116.